STOCKHOLM, July 18 Reuters Swedish bank SEB reported a secondquarter operating profit above market expectations on Tuesday driven by high interest income and low loan losses.

Sweden39;s biggest corporate bank said operating profit rose to 12.1 billion Swedish crowns 1.18 billion from 7.23 billion a year ago, beating a mean forecast of 11.8 billion in a Refinitiv poll of analysts.

SEB said the negative sentiment surrounding the Swedish economy remained, driven by concerns over higher interest rates.

At the same time, the Swedish economy demonstrated unexpected strength, it said in a statement. Companies remained resilient, and the export industry and service sector held up well.

Sweden39;s central bank has raised interest rates to 3.75 from zero in the past 18 months and with inflation still well above the 2 target the Riksbank is widely believed to hike at least one more time this year.

Higher rates have boosted Swedish banks39; income but there are worries it will result in higher loan losses as companies and households are struggling to cope with higher funding costs

SEB said its net interest income, which includes revenues from mortgages, rose to 11.88 billion crowns from 7.74 billion crowns, above the 11.62 billion crowns expected by analysts.

Loan losses on a larger scale are yet to materialize and only amounted to 43 million crowns in the quarter, down from 399 million a year ago, but SEB said it had set aside 300 million crowns to build reserves.

Despite…